Daily Chartbook #225

Welcome back to Daily Chartbook: the day’s best charts & insights, curated.

1. Household debt. US household debt service payments as a share of disposable income are still below pre-pandemic levels.

2. Household savings reserve. "29% of consumers do not have any savings, 34% have 3 months or less in savings, 25% have 4-12 months and 12% have more than a year; this yields an average savings reserve of 4.4 months (slightly down from 4.8 for the past several months)."

3. Recession probability. "The probability of recession in the United States hits 100% for Q42023/Q12024."

4. Distressed firms. "The stance of U.S. monetary policy has tightened significantly. At the same time, the share of nonfinancial firms in financial distress has reached a level that is higher than during most previous tightening episodes since the 1970s."

5. Banks vs. CRE. These are the banks most exposed to CRE loans.

6. Financial conditions. "The nominal GS US Financial Conditions Index tightened by 11.7bp to 99.67 over the last week, reflecting lower equity prices and a stronger dollar."

7. Dallas Fed manufacturing. The index improved to a 3-month high at -23.2 (vs. -26.5 expected). Prices received turned negative and are at their lowest since April 2020 while prices paid are at their lowest since June 2020.

8. USD vs. upgrade/downgrades. "Fewer growth upgrades and more growth downgrades...indicates that the dollar will no longer be pinned down by strong global growth and will instead be freer to respond to late-cycle concerns."

9. Secured junk bonds. "A full 62% of [speculative-grade bonds] have been secured—backed by collateral—offering investors greater protections if the company defaults. That is easily the highest percentage in records going back to 2005."

10. Corporate spreads. "Current IG/HY spreads of 1.34/4.30 percentage points over Treasuries are below the 1-year averages of 1.45/4.69 points. That says this market is more comfortable with the outlook for corporate profits and cash flows than over much of the last year."

11. Treasury yields vs. last hike. "Traditionally, a Fed on hold has resulted in positive returns in the Treasury market...On average, yields declined anywhere between 50-150bp from their local highs in the months after the Fed moves to the sidelines."

12. Cumulative flows. US bonds saw inflows of $4.4bn with a "significant increase in flows towards IG Corps and Mortage+Munis...US equity funds faced notable selling of $5.7bn, following the enormous inflows of $23.7bn a week before."

13. Sector fund flows. Global equity funds reversed 3 straight weeks of inflows. Tech funds saw the largest outflows in 10 weeks while Financials saw their 5th consecutive week of inflows.

14. Buyback blackout. "Last week 60% of S&P 500 members were in our estimated corporate buyback blackout window (which ends 7/28). Tomorrow this jumps to 85%. We estimate executions decline by ~30-35% during the blackout."

15. Rebalancing. "We estimate there could be $70-95bn of US equities to be sold in pension rebalancing flows into month and quarter end, assuming $1.5-2trn of assets following a mix of monthly or quarterly rebalances."

16. Sentiment indicator. “Positioning (light) and sentiment (negative) have acted as the 2 most powerful tailwinds for the stock market this year. This is no longer the case. Our sentiment indicator just came in at 1.4 which is its second consecutive reading north of 1 (readings >1 represent stretched positioning).”

17. Hedge fund risk exposure (I). "Overall book Net leverage has seen a sharp pullback in June and is in the 26th percentile vs. the past year. In contrast, Fundamental L/S Net leverage continued trending higher and is in the 97th percentile."

18. Hedge fund risk exposure (II). "Gross leverage is near multi-year highs, while Net leverage remains well below historical peak levels despite the increase YTD."

19. Hedge fund long/short. "Overall Book long/short ratio has turned lower again in June and is near five-year lows in the 1st percentile, while long/short ratio for Fundamental L/S funds is hovering around five-year averages."

20. Hedge fund sector positioning. "HFs have net sold TMT and Defensives so far in June, reversing the YTD trend. Cyclicals are modestly net sold MTD, as selling in commodities sensitive sectors is partially offset by net buying in Financials."

21. Consolidated positioning. "Aggregate equity positioning edged up slightly further into overweight territory [last] week (z score 0.48, 73rd percentile)."

22. Discretionary vs. systematic positioning. "Discretionary investor positioning remains modestly overweight and is well above levels implied by macro growth indicators like the ISM...Systematic strategies positioning rose sharply [to the highest since November 2021] on the back of a continued decline in vol."

23. CTAs vs. equities. "CTAs equity allocation increased this week and is close to the March peaks (81st percentile). In US equities, CTAs raised long exposure strongly in the small cap Russell 2000, but more modestly so in the S&P 500 and in the Nasdaq 100."

24. Option positioning. "Our US option positioning indicator has turned more bullish."

25. SPX correlation. "Implied correlation for S&P 500 stocks has fallen close to a record low."

26. Weak breadth. "The technical picture remains poor with recent breadth improvement failing yet again. If our view on earnings is wrong, breadth should be improving. Either way, we think equal weighted S&P 500 will begin to outperform market cap weighted S&P 500."

27. Cyclicals breadth. "Breadth for cyclical sectors doesn’t look same across board … Industrials (purple) in clear lead while Energy (blue) lags behind significantly."

28. Energy EPS divergence. Big divergence in the Energy sector's share of $SPX market cap vs. EPS.

29. AI vs. Tech ex-AI. “AI has spilled over to stuff that has no/little AI. Barclays writes: ‘Tech exAI up by ~30%, despite negative EPS revisions’.”

30. Q2 earnings. And finally, analysts expect S&P 500 earnings and revenue to decline 6.5% and 0.4% in Q2, respectively.

Thanks for reading!